Rick Ricart is expecting nearly 40 Kia Telluride
sport-utility vehicles to arrive at his family’s dealership near Columbus,
Ohio, over the next three weeks. Most will be on his lot for just a few hours.
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“They’re all sold,” Ricart said. “Customers have either signed
the papers or have a deposit on them. The market is insane right now.”
In showrooms across the country, Americans are buying most
makes and models almost as fast as they can be made or resold. The frenzy for
new and used vehicles is being fed by two related forces: Automakers are
struggling to increase production because of a shortage of computer chips
caused in large part by the pandemic. And a strong economic recovery, low
interest rates, high savings and government stimulus payments have boosted demand.
The combination has left dealers and individuals struggling
to get their hands on vehicles. Some dealers are calling and emailing former
customers offering to buy back cars they sold a year or two earlier because
demand for used vehicles is as strong, if not stronger, than for new cars. Used
car prices are up about 45 percent over the past year, according to government
data published this week. New car and truck prices are up about 5 percent over
the past year.
Those price increases have fed a debate in Washington about
whether President
Joe Biden’s policies, particularly the $1.9 trillion American
Rescue Plan he signed in March, are responsible for the sharp rise in
inflation. The government said this week that consumer prices across the
economy rose 5.4 percent in the last year through June.
Republican lawmakers have argued that the March legislation
is overheating the economy and are citing the rise in prices to oppose
additional government spending. But Biden administration officials have pointed
out that temporary supply shortages are largely responsible for the surge in
prices of cars and other goods.
Government stimulus may have helped some consumers, but it
is hard to say how much. There are several large forces at play.
The chip shortage, for example, is affecting automakers all
over the world and is not directly related to US policies. Industry officials
blame limited production capacity for semiconductors and
pandemic-related
disruptions in supply and demand for the shortage.
To make the most of limited chip supplies, General Motors
has temporarily done away with certain features in some models, like stop-start
systems that automatically turn off engines when cars stop for, say, a traffic
light. And the French carmaker Peugeot has replaced digital speedometers with
analog ones in some cars.
Rental car companies that sold off thousands of cars during
the pandemic to survive are now in the market to buy cars and trucks. They want
to take advantage of a summer travel boom that has driven up rental rates to
several hundred dollars a day in some places.
“The industry has had strikes and material shortages before
that have left us short of inventory, but I’ve never seen anything like this,”
said Mark Scarpelli, the owner of two Chevrolet dealerships near
Chicago.
“Never, never, never.”
His dealerships normally have 600 to 700 cars in stock. Now,
he has about 50. Once or twice a week, a truck arrives with five or 10
vehicles. The cars disappear quickly because of customer waiting lists,
Scarpelli said.
Even though the unemployment rate is still higher than
before the pandemic, many people have money to spend. Government payments have
helped lots of people, but many Americans, kept from vacationing or eating out,
saved money. Financing cars is also relatively cheap — at least for people with
good credit. Some automakers like Toyota, which has been less affected by the
chip shortage than others, are advertising zero-interest loans on some cars.
Ricart’s family businesses include a custom shop that sells
high-end, special-edition trucks and sports cars. “We had a $125,000 Shelby
pickup, and I said, ‘Who’s going to buy that?’” he recalled. “The next day it
was gone. There’s so much free cash in the market. People are paying full
price, even for the most expensive vehicles we have.”
Dealers are selling fewer vehicles, but their profits are up
a lot. That’s a huge change from the spring of 2020, when most dealerships shut
down for roughly two months and they had to lay off workers to survive.
“The strong demand from consumers paired with a lack of
supply from the manufacturers has created a gusher of profits for dealers,”
said Alan Haig, president of Haig Partners, an automotive consultant.
Now, dealers typically dictate the price of new or used
cars. New cars typically sell for the manufacturer’s suggested retail price or,
in some cases, thousands of dollars more for models in very high demand.
Haggling over used cars is a distant memory.
“There’s not a lot of negotiating that goes on right now on
price,” said Wes Lutz, owner of Extreme Dodge in Jackson, Michigan.
Some customers have balked at paying top dollar for new cars
and have opted to make do with older vehicles. That has increased demand for
parts and service, one of the most profitable businesses for car dealers. Many
dealers have extended repair-shop hours. Ricart said he had some repair
technicians putting in 10- or 12-hour days three or four days in a row before
taking a few days off.
Of course, the shortage of cars will end, but it isn’t clear
when.
As COVID-19 cases and deaths rose last spring, automakers
shut down plants across North America from late March until mid-May. Since
their plants were down and they expected sales to come back slowly, they
ordered fewer semiconductors, the tiny brains that control engines,
transmissions, touch screens and many other components of modern cars and
trucks.
At the same time, consumers confined to their homes began
buying laptops, smartphones and game consoles, which increased demand for chips
from companies that make those devices. When automakers restarted their plants,
there were fewer chips available.
Many automakers have had to idle plants for a week or two at
a time in the first half of 2021. GM, Ford Motor and others have also resorted
to producing vehicles without certain components and holding them at plants
until the required parts arrive. At one point, GM had about 20,000 nearly
complete vehicles awaiting electronic components. It began shipping them in
June.
Ford has been hit harder than many other automakers because
of a fire at one of its suppliers’ factories in Japan. At the end of June, Ford
had about 162,000 vehicles at dealer lots, fewer than half the number it had
just three months ago and roughly a quarter of the stocks its dealers typically
hold.
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